Bradford DeLong wrote:
> >Bradford DeLong wrote:
> > >
> > > Devalue, default, and dollarize is my favorite option...
> >
> >Devalue first will create a huge financial hole. For example, all Public
> >Utilities have their tariffs set up is dollars as part of the
> >privatization arrangements. Most families have debts in dollars and so do
> >firms...
>
> Which is why "default" has to be part of the package. Devaluation
> without default (or "write down") simply places massive numbers of
> businesses and households under intolerable debt burdens...
I assume you assume that bond holders will agree on reduction in interest/principal.....ok, lets wait
>
>
> >What is likely is "pesification" and then devaluation which would hurts small
> >savers who have their savings in dollars...If you devalue and then
> >dolarize you are lowering NOMINAL wages in dollars by, say, 25%??? hummm.
>
> But devaluation gives you more competitive exports, and hence an
> export boom, while dollarization gives you lower domestic interest
> rates because financiers no longer anticipate a future devaluation...
export boom??? come on brad, get back you keynesian hat!!! who is going to buy today?? the US? Europe? Japan? The only problem I have with dollarization is that tha happened to Panama when the US had difficulties getting Noriega....small problem, ha? Dollarization would be a huge victory for the US in that it will destroy what is left of Mercosur and will create better conditions for FTAA, dont you think so?
> >
> >Brad, these measures could all be consider, but again, strong political
> >leadership, an urgent plan to feed the poor, a minimum salary to
> >household heads unemployed...
>
> All of which need to be financed from one of three sources:
> hyperinflation, borrowing, or taxation. This would seem to indicate
> that job 1 is tax reform: collect the taxes.
yep, lots of money in the hands of a few. big political problem, but that is where the money is, you are right. Industrials and Unions have been working together for quite a while now, setting up an alternative program which of course was totally ignored by Cavallo and De la Rua.....maybe it is time for a change now.
>
>
> >Monetary solutions, I believe, miss to
> >diagnose the real problem....
>
> Rather, there are two problems. The first is the currency board
> problem. Originally a mechanism to fight hyperinflation and create
> price stability, it has turned into a monster that squeezes exports
> and demands high domestic interest rates that squeeze investment, and
> the result is domestic depression. It is yet another example of the
> principle that trying in the name of preserving "credibility" to
> cling to policies that are intrinsically incredible creates
> macroeconomic disaster...
>
> The second is the fiscal problem: how can a bureaucracy unable to
> cope with large-scale tax evasion and a legislature and executive
> unwilling to raise taxes satisfy the national demand for social
> democracy without generating hyperinflation? The IMF doesn't see a
> way without making large-scale loophole closing and better tax
> collection efforts a very high priority, and I think I agree...
which means taxing production and reducing govt. spending by reducing purchasing power!! that is the same old story, or am I missing something???
>
>
> Brad DeLong